Debt Management vs. Debt Negotiations

Most of us are overloaded with debt at one time or another. Whether car and house payments, student loans, or too much credit card debt, we're always searching for a better way to get out of debt. Choosing a debt reduction plan is important and requires a strategic plan.  Simple budgeting isn't always enough, especially when you're faced with a large amount of debt.

Types of debt that are often troublesome;

• medical bills

• student loans

• credit card debt

• collection accounts

What is Debt Settlement

Debt settlement also referred to as debt negotiations, is a method to settle your debts for less than what you owe. Debt settlement procedures can be very effective IF you know what you are doing and have some money.

When you want to avoid bankruptcy and get out of debt AND have some money set aside, you can negotiate with your creditors or use a debt negotiator to do it for you. Often they will offer 30-40% of the total debt to be considered as settled in full. This can cut the debt in half and consider it a case closed. That means no more worrying about the creditors coming after you or worrying day and night about being sued or slapped with a judgment.

You must have money to settle your debts. Otherwise, there is no "debt settlement"”  Many times the creditors will accept this, especially if you are in dire straights and they fear you may file for bankruptcy and they'd be left with nothing. Negotiating your own debts without paying a professional. That can mean even more money in your pocket.

What is Debt Management

Debt Management is an entirely different program than debt negotiations. Credit counseling or debt management is used to cut your monthly payments to your creditors, but you still pay the entire balance. It's a good alternative if you cannot meet your creditors' monthly obligations and are falling behind.

A debt counselor can set up a program with your existing creditors and, in essence, "freeze collections" and reduce your monthly payment. This gives you adequate time to repay everyone without worrying about the accounts going into collections or being sued.

A good debt management program will be a not-for-profit that will work as your counselor and do all the dirty work with the creditor. You simply pay one payment to the credit counseling firm each month, and they disburse your payments to your creditors. 

You can even get many creditors to agree to freeze the interest or remove late fees. They will often "suspend" credit reporting while you complete the program.

What is the difference between debt management and debt settlement?

Debt settlement is a process that allows the debtor to negotiate with the lender to come up with a more manageable payment plan. Debt management is a process that helps people who are struggling to repay their debts.

Debt management programs work with creditors to develop a repayment plan, while debt settlement programs can be used when someone has already fallen behind on their payments and needs help. Debt management programs will work with you if you have any questions about your credit score or need help with budgeting, while debt settlement programs focus more on getting you out of debt as quickly as possible.

What are the benefits of debt settlement?

Debt settlement is a process of negotiating with creditors to reduce the amount owed.

Debt settlement can benefit people who cannot make their payments on time and are struggling to pay off their debt. It can be financially beneficial because debt settlement will result in a lower interest rate, lowering the total cost of debt and in many cases, lowering the overall debt by up to 50%.

Debt settlement is also helpful for people who have been turned down by bankruptcy because it will help them get rid of their debts without getting rid of all their assets.

What are the benefits of debt management?

Debt management is a way to eliminate debt by making manageable monthly payments. It can help you avoid bankruptcy and maintain your credit score better than a public record recorded against it.

Debt management can be beneficial in many ways:

• -Eliminate debt faster

• -Avoid bankruptcy

• -Maintain your credit score (compared to a BK record)

• -Keep a steady income

What are some of the disadvantages of hiring a debt management company?

Debt management companies are not for everyone. They can be expensive and require a lot of trust. Asking a debt management company to manage your debts will mean that they will take control of their finances and dictate what you can spend, where you can spend, and how much you can spend.

So Which is Best for You?

That depends on whether you have money set aside or not. There is little room to negotiate settlements if you can barely meet your monthly living expenses. You'll need some bargaining power for a creditor to accept a settlement or reduced payoff. Debt management would be ideal in this situation to get the creditors off your back while you dig out of debt. If all else fails, bankruptcy is an option to wipe away unsecured debts or re-organize secured ones.